The Importance of Having Control over Exiting Your Business

Posted for the Post-Crescent

Are you planning to be married to your business until the day you die, or would you like to have control over exiting your business on your own terms? Would you like to receive maximum value for your life’s hard work and make sure that the business survives into the next generation?

Most business owners know that they will want to transition out of their business someday, but do little, if anything, to plan for it. This lack of planning leaves it entirely in the hands of fate or up to someone else to ultimately have power and control over this important business transition. Succession or exit planning, though difficult for all businesses, is the most complex for family owned and privately held companies due to the emotional and relationship issues that go hand in hand when one is in business with family members and friends, especially when the values of the family often conflict with the values of a business.

Family owned businesses comprise a very large sector of the US economy (some estimates are as high as 90% of businesses). Within the next few years, a significant number of family business owners expect to be retiring. In many cases, control of the family business will be handed off to the next generation. The successful transfer of power and leadership in the business is a critical part of the process of succession.

Family business transitions have an alarming failure rate: two-thirds of family businesses are without any form of succession plan, and roughly the same amount of family businesses do not survive beyond the founding generation. Some common issues that arise in a family business transitioning from one generation to the next include: unprepared successors, the reluctance of the owner to give up power and control of the business, and conflict between family members, especially between the two generations. There can be many other issues, and therefore, the importance of succession planning is evident.

In family businesses, successors are often unprepared and/or unqualified to tackle the challenges at hand. Often, the owner has always called all of the shots and been in control of everything in the business, which has not allowed for successors to develop adequate leadership or management skills. Also, without a grooming or mentoring process in place, most next generation leaders will be unprepared for the multitude of challenges likely to arise in a transition. This is especially true in crisis situations, such as sudden illness or death of the current owner.

Intergenerational differences and conflict can arise for many reasons. The founding generation of a family business likely faced much tougher life circumstances and had to work very hard to create and grow the business. This helps to create a stronger and more diligent work ethic in these individuals, ultimately playing a role in the success of this generation’s entrepreneurial endeavors. The next generation, largely due to the success of the business, has often grown up more privileged and as a result, may lack the ambition, motivation, and work ethic necessary to prosper in a self-employed environment. Succession planning can ensure the grooming of the next generation of owners and leaders.

Succession planning undoubtedly creates a smoother transition of power, and ultimately results in higher success rates of an intergenerational transfer of a family business. Our goal is to create a “win” for the three key areas of the family, the business and the ownership structure so that each area can be successful.